TY - JOUR
AU - Holden,Steinar
TI - The Costs of Price Stability - Downward Nominal Wage Rigidity in Europe
JF - National Bureau of Economic Research Working Paper Series
VL - No. 8865
PY - 2002
Y2 - March 2002
DO - 10.3386/w8865
UR - http://www.nber.org/papers/w8865
L1 - http://www.nber.org/papers/w8865.pdf
N1 - Author contact info:
sholden
AB - In most European countries, the prevailing terms of employment, including the nominal wage, can only be changed by mutual consent. I show that this feature implies that workers have a strategic advantage in the wage negotiations when they try to prevent a cut in nominal wages. If inflation is so low that some nominal wages have to be cut, the strategic advantage of the workers' induces higher unemployment in equilibrium. The upshot is a long run tradeoff between inflation and unemployment for low levels of inflation. The prediction that low inflation involves higher unemployment in Europe but not in the US, is consistent with previous empirical findings.
ER -